WASHINGTON — Muni market groups reacted to the Municipal Securities Rulemaking Board's revised Frequently Asked Questions about its core muni advisor rule the same way they did to the first draft, calling it confusing and urging the MSRB to stop relying on informal guidance.
The MSRB released its latest FAQs for Rule G-42 on the duties of non-solicitor municipal advisors late Wednesday. The 10-page document is the result of the MSRB’s request for comment on draft FAQs in February, which market groups then responded to in April.
The MSRB said main goal of the FAQs is to help market participants determine when a “recommendation” has been made pursuant to Rule G-42, because a recommendation to a state or local government client triggers certain obligations for the muni advisor. But while the MSRB’s latest effort did make several changes responsive to market comments, groups representing dealers and muni advisors still have doubts about its usefulness.
The MSRB rephrased some questions from the draft, and included some clarifications aimed at addressing concerns the board received during the commentary period. For example, the FAQs now state explicitly that the reader should assume the information in each FAQ meets the definition of “advice“ as set forth in the Securities and Exchange Commission’s muni advisor registration rule as well as in G-42. The two terms are related but not identical, as not all “advice” contains a specific call to action that would trigger the suitability requirements imposed for recommendations under G-42.
In another change, the MSRB added a footnote to a section about conduit issuers to cross-reference previously-issued guidance after the National Association of Health and Educational Facilities Finance Authorities told the board the lack of mention of that guidance was confusing.
Despite these changes, market groups still have a larger concern about how they should interpret the FAQs. The MSRB considers the document a “compliance resource,” rather than formal guidance, which has caused some market participants to question whether they can rely on them or whether the MSRB intends them to. In the formal interpretive guidance process, the SEC approves the guidance often after holding its own separate comment period. The MSRB acknowledged the concerns in a notice posted with the FAQs, but ultimately decided against going any further in formalizing the guidance.
“As noted in the FAQs, the FAQs discuss principles established in the MSRB’s regulatory filings associated with the development of Rule G-42,” the MSRB notice declared. “The MSRB, therefore, continues to believe the FAQs do not create new legal or regulatory requirements; nor do they assert new interpretations of existing requirements.”
Bond Dealers of America chief executive officer Mike Nicholas said his group would have liked to see formal guidance.
“The BDA appreciates the MSRB’s efforts to further clarify Rule G-42,” Nicholas said. “However, the length of the FAQ document is exemplary of the unnecessary complexities of this rule. The BDA continues to believe that the MSRB should not provide extensive guidance in an informal fashion and believes that the MSRB would benefit from a rigorous comment process afforded by the formal interpretative guidance process.”
Securities Industry and Financial Markets Association managing director, associate general counsel, and co-head of munis Leslie Norwood expressed concern about the interplay between G-42 and SEC rules.
“On initial review, while SIFMA appreciates the MSRB seeking industry comment on the draft guidance, we still believe the FAQs as published are confusing,” she said. “We also continue to have concerns about the incongruities between MSRB Rule G-42 and SEC rules, and the potential for that dissonance to create examination and enforcement issues.”
Susan Gaffney, the executive director of the National Association of Municipal Advisors, said the FAQs added some helpful information but that the group would review it.
“The guidance contains some helpful conversation related to the definition of recommendations and we will be further reviewing the document with our members over the next few days,” she said.
Gaffney previously said in written comments to the MSRB that muni advisors should have more clarity about the ability to rely on such guidance.